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Tuesday, July 27, 2010

Poor Monetary Policy Increases Value Of Gold

Despite gold remaining dormant for a while, Moses Kim thinks it could be building up to another rally, especially if news emerges of another round of quantitative easing by the Federal Reserve. Kim is critical of the Fed's policies and thinks this increases the long term value of gold. See the following post from Expected Returns.

Although it may not seem like it right now, gold is putting in the conditions for a runaway move: months of consolidation, waning volume on the downside, general bearish sentiment, and most importantly, boredom.

The gold market really puts you to the test. I must admit I am bored out of my mind tracking this market on a day-to-day basis. It is only my experience that keeps me sane, since I know that the longer gold lies dormant, the stronger the volcanic eruption will be. I am simply accumulating on weakness and getting ready for the ride.

Helicopter Ben has made it clear in recent testimony that another round of quantitative easing is coming. When the Fed first announced its plan of quantitative easing last March, gold reacted immediately, embarking on a multi-month, $300 dollar rally. Quantitative easing part 2 should result in an even more explosive rally. Be wise and build your position before Helicopter Ben makes QE 2 official.

It is amazing to me how bearish the mainstream continues to be about gold. Do they not realize that being bearish on gold is the equivalent of being bullish on the fiscal and monetary policies coming out of the Fed and our government? I truly believe this is a once-in-a-lifetime opportunity to implicitly short all of our braindead leaders across the board by buying gold. I doubt we will see fiscal stupidity of this magnitude anytime soon.

And at the end of the day, do you really want to fight the money printing prowess of this guy?

So where is gold going tomorrow or next week? I have no clue. All I know is that fundamentals always win in the long run. Follow the advice of Warren Buffett and buy value. There is so much value in gold and silver shares right now that I hope gold consolidates for another year. I am also praying for another $100 dollar shellacking of gold so I can buy at a discount. But most of all, I am praying that Prechter comes out on CNBC and calls the top in gold. I will then back up the truck in gold and silver shares with conviction.This post has been republished from Moses Kim's blog, Expected Returns.